Property market slump takes $585m chunk out of government coffers

By Benjamin Preiss and Adam Carey

Victoria’s housing market slump and a burgeoning public sector wages bill have combined to take a $585 million bite out of state government coffers, a budget update released on Friday says.

But Victoria’s economic outlook remains positive despite the softening property market, thanks to robust population and employment growth, a mid-year update to the budget shows.

Dan Andrews and Tim Pallas are looking at a much reduced stamp duty take.Credit:AAP

The state’s economy grew by 5.2 per cent last year – the highest growth rate of any state, while unemployment fell from 5.5 per cent to 4.5 per cent, the update shows.

Business investment, household consumption and government spending were the biggest contributors to economic growth in the last six months of last year.

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However, the net positive result from government transactions and revenue sources shrank in that time to $365 million, compared with $950 million at this time last year.

The decrease in the Andrews government’s operating surplus was in large part due to a drop in revenue from stamp duty and rising public sector employee expenses.

“For the six months to December 31, 2018, the general government sector recorded a positive net result from transactions of $365 million,” the update says.

Released by the Department of Treasury and Finance, the budget update attributed the decrease in revenue to lower stamp duty brought on by the property market downturn. Meanwhile expenses, such as public sector wages, had increased.

The government had previously forecast that a decrease in property sales would impact its budgetary position.

And earlier this month Treasurer Tim Pallas said the government would need to make “hard choices” as he flagged the possibility of limiting new annual wage increases of 2 per cent for public sector workers – some of whom are due to renegotiate workplace pay deals this year.

Police and paramedics are among the workers whose pay deals are set to expire this year.

Victoria’s public sector wages bill grew by $1 billion in the six months to December 31 last year, compared with the same six months in 2017-18, from $11.3 billion to $12.3 billion.

“Compared to the same period last year, employee expenses were almost $1 billion higher, mainly due to increased service delivery in the health, education and community safety sectors, as well as salary growth in line with enterprise bargaining agreements,” the update stated.

Income from stamp duty transactions decreased by $175 million last year, from $3.484 billion in 2017 to $3.309 billion last year.

The government said the update showed the Victorian economy was well equipped to deal with future challenges, including a softening property market.

Net debt remained consistent with budget forecasts that support Victoria retaining its triple-A credit rating from both major credit rating agencies, it said.

"Victoria’s economic fundamentals are strong and this is confirmed by the mid-year financial report,” Mr Pallas said.

Shadow treasurer Louise Staley said the economy was being weighed down by 12 new and increased taxes brought in by Labor. She also criticised the government's decision in November to double the state’s debt level from 6 per cent to 12 per cent of gross state product.

She said the government’s budgetary position was “much more finely balanced” than it had previously been.

“It does mean they’ve got no room for anything to go wrong,” she said. “The Andrews Labor government’s commitment to double debt will continue to put more pressure on the state economy which put jobs and wages growth at risk.”

The government announced its plan to double the debt rate on the eve of the state election in November, to pay for three big transport pledges: the $15.8 billion North East Link, $5 billion towards Melbourne Airport rail, and $6.6 billion to remove 25 more level crossings.